Behavioral Biases in Active Equity Management

In a recent analysis, a portfolio manager at an equity investment firm observed that despite consistently outperforming the benchmark over the long term, the firm's performance was not reflected in a corresponding increase in client assets. This perplexing situation drew attention to the behavioral biases prevalent amongst investors, including loss aversion and overconfidence.

Discuss how these behavioral biases can impact active equity managers’ decisions and the perceived performance of their investment strategies. In your response, provide specific examples of these biases, along with strategies that can be implemented to mitigate their effects on investment outcomes. Additionally, reflect on how acknowledging these behavioral considerations might influence the firm’s marketing strategy to attract and retain clients.